Three Signs of Increased Gold Demand

As we watch stocks tumble and the price of gold hold strong—especially in recent weeks—it’s apparent that gold may be primed to have a good year. In the simplest economic terms, the supply and demand of gold include some favorable “trade winds” that we can identify this very week.

What are those trade winds? You should look for the following:

Big pro-gold moves by large international banks

Repatriation of gold stores by companies or institutions that hold gold internationally

Signs of increased demand from consumers who are looking for safe haven investments

In recent news, all three are obvious:

1. European repatriation of internationally-held gold.

With news that Germany’s Bundesbank is repatriating more than 210 tons of gold—that’s over 181 kilograms or over five million troy ounces, a value of some five billion dollars—it’s apparent that there are some monumental shifts going on across the world. In 2014, Bundesbank brought home 120 tons of gold and in 2015, that increased.

What’s the explanation? It’s no coincidence that a European debt crisis has triggered worries about the amount of physical gold held in Europe—previously, the gold mentioned for Bundesbank was held in vaults in Paris, but also New York.

2. A giant vault for gold in London purchased by China’s largest bank.

With the recent news that China’s largest bank is acquiring a gigantic gold and silver vault in London, it’s obvious what their intent is: they’re going to store a heck of a lot of precious metals. Currently, the process is merely in the “application” stage, which means that nothing is finalized—but it still represents a sea change in how some of the world’s gold and silver may be handled.

The vault’s capacity? 1,500 tonnes.

3. An Increase in Middle East demand.

Gulf News Retail’s headline “Gold returns as a safe asset for UAE shoppers” is hardly a sign that the international market for gold will change—but it’s certainly an interesting indicator as to how international customers are coming to view the precious commodity. According to the news site, some 9-11 tonnes were purchased in the UAE in January alone.

They quote Abdul Salam K.P., of the Dubai Gold & Jewelry Group, as saying that there appears to be a lot of “safe haven” buying going on at the current moment. That certainly lines up with what we’ve seen of a stock market that has completely flubbed the beginning of 2016.

What does this mean for the price of gold? As of today, we’ve seen an increase in the price of gold of some 4+% in the past 30 days, 3% when added over six months, and fluctuations as high as 1% on a daily basis. Some day to day volatility is to be expected, but if you were waiting to make a move on gold, it might be a good idea to get invested before the trade winds have already made their way up the coast.

What Do You Think?

What factors do you think will shape gold's demand throughout the year 2016? Let us know your opinion in the comments below!

Darren Capriotti has been a market analyst for the past decade and is an expert in precious metals. He prides himself on his ability to analyze the market and offer true value to investors with questions about gold, silver, and other precious metals. Highly educated, incredibly passionate, and more accurate than most, Darren offers a true, unbiased look into what investors can expect in the precious metals market. You can reach Darren at dcapriotti@gold-eagle.com.